Market Overview

19 October 2021

Copper: A Sudden Stop Ahead of the Rise

Cooper, an industrial metal of high-demand, is receiving multiple upside signals. The metal rose by 11% from $9400 to $10,400 per ton on the London Metals Exchange on October 13-19. Also, an important $10,000 resistance was easily broken as the trend is currently pointing towards $10,800 per ton.

There are many reasons for this rally. The demand rose dramatically as global economies are recovering. But the supply is struggling as fuel prices peaked to record highs, pushing energy prices above all expectations. That pushed copper producers and processor expenses way up, even partially tightening output. So, the supplies of copper are decreasing, causing a deficit in the market. LME copper stocks fell to the 1974 lows. Available stocks for sale are at 14,200 tonnes, while in September stocks were at 200,000 tonnes.

On the other hand, the demand for copper is surging as this metal is used in “green” technologies, such is wind power generation, electric vehicles production, etc. The copper producer in Chile, Codelco, suggests the demand for copper could go up by another 2-3% in 2022.

A combination of these factors pushed prices to record highs.

But now the picture seems to be changing amid some signs that growth is slowing down. Copper prices are consolidating within a narrow range of $10,200-10,400 per ton after a non-stop rally from $9,400 per ton. On the price chart the shadows of candlesticks pointing up may be seen with the closing below the resistance at $10,363 per ton. That may point to a weak ability of the bulls to break further up to new highs. Moreover, there are no additional drivers to push prices higher, all existing factors are already priced in. Investors may expect that the Federal Reserve (Fed) members could shed more light on the tapering later this year. Any indications towards early tapering of stimulus measures may limit the demand for risky assets including non-ferrous metals. Manufacturing activity employment indicators and home sales in the United States that are going to be release later this week, may affect copper prices too.

So, copper prices may head to a correction of $9,940-10,000 per ton where strong support levels are located. It may be wise to abstain from buying copper contracts at current high prices, and wait for the opening of any buy position when prices retreat to the indicated levels.

 

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Mark Goichmann
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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